It is the first question almost every owner has when they start thinking about selling, and the one they are most often given a vague answer to. What is my business actually worth?
The honest answer has two parts. A precise, defensible number takes real work: clean financials, scrutiny of every add-back, comparable transaction data, and a check against what a buyer can finance. But a sound estimate, the right range rather than the exact figure, is something you can produce yourself in a few minutes, using the same equation a broker or an appraiser starts from.
This page gives you that framework. It walks through the two numbers that decide the estimate, includes a calculator to run your own figures, and is honest about the gap between a quick estimate and a real valuation.
The one equation
Almost every small business sale price comes from the same short equation.
Business Value = SDE × Multiple
Two inputs. The first, SDE, is what the business earns for an owner in a year. The second, the multiple, is how many years of that earnings a buyer will pay for up front. Multiply them and you have an estimate of value.
That is the whole framework. For the typical owner-operated small business, the range from a few hundred thousand to a few million dollars in value, SDE times a multiple is the method.
Why the obvious shortcuts mislead
The framework is one short equation. So why do do-it-yourself estimates so often miss the mark? Because there are three faster-looking shortcuts, and each one points away from what the business is actually worth.
Valuing on revenue. "We do $2 million a year" is a revenue figure, and revenue is not value. It says nothing about what the business earns. Revenue multiples are used as a rough cross-check in a few specific industries, but as a primary number, revenue almost always points the wrong way.
The generic rule of thumb. Every trade has one: businesses like yours sell for some standard multiple. A rule of thumb is an average with all the context stripped out. It cannot tell the difference between a business that runs without its owner and one that does not.
Working backward from what you need. This is the most human shortcut and the most expensive. An owner settles on the figure they need to retire, and reasons backward to an asking price. The market does not know or care what you need.
Step one: your SDE
SDE stands for seller's discretionary earnings. It is the total annual financial benefit the business produces for one full-time owner-operator. It is not your revenue, and it is not the profit on your tax return.
Most owners run their business to keep taxable profit low, which is sensible while you own it. SDE undoes that. You start with the pre-tax net income on your tax return and add back the things that are specific to you as the current owner:
- Your own compensation and benefits.
- Interest expense, because the next owner will have their own financing.
- Depreciation and amortization, which reduce reported profit but are not cash leaving the business.
- One-time costs that will not recur.
- Documented personal expenses run through the business that a new owner would not incur.
A business reporting $80,000 of net income can easily show $250,000 or more of SDE once those add-backs are in. For the framework estimate, use your honest, documented SDE.
Step two: your multiple
For most small businesses the multiple falls between roughly 1.5 and 4 times SDE. A $300,000 business at 1.5x versus 4x is the difference between $450,000 and $1.2 million.
The multiple is a measure of risk and transferability. Five factors do most of the work.
| Factor | Pushes the Multiple Up | Pushes the Multiple Down |
|---|---|---|
| Owner involvement | The business runs without the owner present | The business cannot run without the owner |
| Revenue type | Recurring, contracted, predictable | One-time, project-based, won again each year |
| Customers | Diversified across many accounts | Concentrated in one or two accounts |
| Trend | Revenue and earnings growing | Flat or declining |
| Books | Clean, organized, easy to verify | Messy, hard for a buyer to trust |
A business strong on most of these sits in the upper part of the range. One weak on most sits in the lower part.
Run your numbers
Take a landscaping business with $300,000 in SDE. The owner is still central to the operation, customers are spread reasonably, and the business is stable. That is a typical profile, which puts the multiple in the 2.3x to 3.1x band. The math: $300,000 times 2.3 is $690,000, and $300,000 times 3.1 is $930,000. The framework estimate is a range of roughly $690,000 to $930,000.
The calculator below runs the same arithmetic on your numbers.
Business Valuation Calculator
Which best describes the business?
Estimated value range
Enter your SDE above
Based on a 2.3x to 3.1x multiple of SDE.
That range is your framework estimate. It is a real result, anchored in the same equation the market uses, and it is enough to keep you from being talked into a number far outside it.
What the number is, and what it is not
The framework estimate is genuinely useful. But an estimate is not a valuation, and four things separate the two.
Add-back scrutiny. Your SDE figure assumes every add-back holds. A buyer's lender will not assume that.
The financing ceiling. There is a point above which no buyer's loan can cover your number, regardless of what the multiple says it is worth. Our guide on what DSCR is shows how that ceiling is calculated.
Where exactly in the range. The band is wide on purpose. Pinning the point inside the range takes real comparable transaction data.
Buyer-specific reality. The final price is also shaped by how many buyers compete for the business, how the deal is structured, and the situation of the specific buyer who closes.
That precise number is what BizTender's free valuation produces, and it is the natural next step from this page.
Get the precise number
Get a free valuation built like an underwriter's.
The framework on this page gives you the right range. BizTender's free valuation gives you the number inside it. It reviews your real add-backs the way a lender would, applies transaction data for your industry, and checks the price against what a buyer's loan can actually support. About twenty minutes, and it costs nothing.
Common questions about valuing a business
Can I really value my business in a few minutes?
You can get a defensible range in a few minutes. You cannot get the final number. The framework here, SDE times an industry multiple, is the same starting point a broker or appraiser uses, so a careful estimate lands in the right neighborhood.
Is SDE the same as my profit?
No, and the gap is usually large. Profit, or net income, is what is left after every expense including your own pay. SDE adds back your compensation, benefits, interest, depreciation, and documented personal expenses. A business with $80,000 of net income can easily have $250,000 of SDE.
What multiple should I use?
For most small businesses the range is about 1.5 to 4 times SDE. Where you fall depends on risk and transferability: a business that runs without the owner, has recurring revenue, diversified customers, a growth trend, and clean books sits near the top.
Why is my framework estimate different from what a buyer offers?
A framework estimate is what the business is worth in principle. An offer is shaped by other things: which of your add-backs the buyer's lender accepts, whether the price clears the debt-service math on a loan, how many buyers are competing, and the specific buyer's situation.
Is the free valuation actually free?
Yes. BizTender's valuation costs nothing and carries no obligation. It runs the same arithmetic as this page, with the precision a framework estimate cannot reach: your real add-backs reviewed the way a lender would, transaction data for your industry, and a check of the price against what a buyer's loan can support.